Offshore Development Center: Overview and Costs in the USA?

What is an Offshore Development Center (ODC)?

An offshore development center is a remote location set up in another nation to offer IT services, software development, and other technological solutions. Although it is overseas, typically in an area with cheaper labor and operating costs, it functions as a company’s dedicated team or subsidiary.

Key Characteristics of an ODC:

• specialized team members and specially constructed infrastructure.
• long-term agreements to support large-scale or continuing initiatives. 
• affordable services that don’t sacrifice quality.
• specialized services such as IT support, DevOps, software development, and quality assurance.

ODCs are frequently chosen by businesses to cut costs while retaining productivity and having access to worldwide talent.

What if the ODC is in the USA?

If you set up a development center within the USA, it’s technically not “offshore”, but instead a nearshore/local setup. Here’s how the costs break down:

Costs of Setting Up a Development Center in the USA

• Labor Costs (Biggest Expense):

1. 1. • Software Developers: Salaries range between $80,000 – $150,000/year depending on location and expertise.
      • Other Roles (QA Engineers, Project Managers, Designers, DevOps): Salaries average $70,000 – $120,000/year.
      • Combined team costs for a small ODC (5-10 members) can total $500,000 to $1.5 million annually.

• Hourly Rates:

1. 1. • Developers in the USA charge around $50 – $150/hour depending on experience and region.

• Infrastructure and Overhead Costs:

1. 1. • Office Rent: Costs range from $2,000 to $10,000/month, depending on the city (higher in places like San Francisco or New York).
      • IT Equipment: Laptops, servers, software tools, and licenses could cost $50,000 – $100,000 annually.
      • Utilities, internet, and maintenance: Around $2,000 – $5,000/month.

• Operational Expenses:

1. 1. • Recruitment and Training: One-time costs for hiring and onboarding talent can reach $10,000 – $20,000 per employee.
      • Employee Benefits: Add 20-30% to salaries for healthcare, insurance, and taxes.

• Management Costs:

1. • Hiring local managers for oversight adds another $100,000 – $150,000 annually.

USA vs Offshore Costs

• • USA-Based Development Center: Costs range between $500,000 to $2 million annually for a small to mid-sized team.

• Offshore ODCs (e.g., India, Eastern Europe, Philippines):

• • Labor Costs: $15 – $50/hour.
  • Total yearly expenses can drop to $150,000 – $400,000 for the same team size.

Why Companies Choose Offshore ODCs

• Significant Cost Savings: Lower operational and labor expenses.
• Access to Talent: Highly skilled developers at competitive rates.
• Focus on Core Business: Offshore teams handle IT tasks, freeing up in-house resources.

Conclusion

Despite having a large talent pool, the cost of establishing an offshore development center in the USA is far higher than that of offshore alternatives. For a small team, the annual costs in the USA can range from $500,000 to $2 million, while offshore destinations such as Eastern Europe or India can provide the same services for a fraction of the price.